Monday, December 28, 2009

Santa Rally Retail Update: Late Shoppers Save Christmas

I have been cautioning folks not to jump to conclusions on holiday retail, given that this season will be late and discount-driven. I had been expecting decent growth this year over last (which was an unusually poor year). After posting Grinchist concerns on holiday retail ever since the snowy weekend before Christmas, I find that a report yesterday has sparked some retail revisionism. The report comes from MasterCard's SpendingPulse, and says a last minute burst of shopping has boosted sales by 3.6% over last year.

set up a game of chicken, with consumers hoping for signs of panic
among retailers that would prompt last-minute price drops and retail
executives betting that signs of a possible economic recovery would
cause customers to finally give in and shop.

Yelnik - I really expected to see some kind of follow thru from the upward channel break on Friday (on the S&P cash) - obviously - there was no follow thru. On the DJIA - it came up to but did not break that upper band. This is looking like some kind of false break.

If your santa rally count is right, there was a marginal high made on the S&P Friday - couldn't that complete the wave? Does the lack of follow-thru from the Friday indicate that the momentum up was false?

Joe

PS - I do my X-mas shopping at the last minute every year - never intend to but always works out that way - there were no big crowds at the mall on the 23rd or the 24th as there always were in the past where I live.

Joe, the classic Santa Rally has spurts and stalls with in it. Typically we should be flat tomorrow than begin to accelerate up into next week, ending Jan7. It could be that stall was the drop after the open today, and we go up tomorrow; but I rather expect a further correction tomorrow, maybe after we open up and fade again. Here is why:

In Tony C's count we are in wave 3, which has gone 36 pts vs wave 1 at 30 pts. While a typical wave 3 would go 1.6x wave 1, so has another 12 pts to go, or 48 pts total, it appears we started wave 4 already today. If it retraces 38%, it would drop 36*38%=14 pts off the peak, or Sp1116 from a peak of Sp1130. Then we get wave 5, which might extend to 1,6x wave 1 (from 30 to 48 pts) or wave 3 (from 36 to 58 pts), giving a target of Sp1164-1174.

The STU has an additional metric, which is their upper trendline of the expanding triangle. In the Dow this would be at around Dow10600 on Jan7.

To summarize: a simple count is that wave 3 ended today at Sp1130, and the wave 4 correction had an A wave down to Sp1124 and is in a B wave back up. It should have a C wave tomorrow with a target downside of Sp1116, or could break as a triangle over the next several days with a downside of around Sp1124. Then wave 5, which should go at least 30 pts to Sp1146-1154, and is more likely to go 48 pts to Sp1164-1172, with a possible upper limit around Sp1174-1182.

Yelnick, First thank you for your great insights and commentaries on the market. The retail information from Mastercard SpendingPulse may be factual except that if you adjust for the number of shopping days between Thanksgiving and Christmas for both years, the increase in sales is only about 1 percent.

Brandon, it is a sign that Q4 GDP will be ok, maybe above 4%, and the next few quarters will be up as well. A W shaped recovery will look like a V, at least at first. As to stocks, I have a post tomorrow to lay out the GDP story. It is not promising. Looks like a second half (2010) fall down, maybe back to negative in 1Q11. If indeed stocks 'anticipate' by six months, they should peak by Feb. More likely what will drive stocks to top is the withdrawal of liquidity by the Fed as part of ending QE by end of Q1, and by the rise in Treasury rates. Again suggests a top in Q1.

That is all fundamental analysis. TA says a top is nigh. We are in an expanding triangle (Prechter) or broadening top (similar formations), and are in a final wave 5 to end it (or a fourth top in the broadening top view). That wave 5 seems to have ended wave 3 and is in wave 4, which should continue tomorrow and maybe Wed. Then the final 5 of 5 to some sort of top in the first week of Jan.